In re Shulman
In re Shulman
Opinion of the Court
In this original proceeding, relator Howard Shulman seeks mandamus relief from orders abating the underlying case and compelling certain discovery. See
Real party in interest Georgia Foulard engaged attorney Shulman to provide tax planning advice regarding certain property transfers benefitting Georgia as a result of a divorce settlement with her husband, Michael Foulard. Georgia later sued Shulman alleging negligence, breach of fiduciary duty, and other claims. Though she seeks several types of damages, Georgia claims principally that Shulman's alleged wrongful conduct exposed her to approximately $1.6 million in potential federal tax liability. After Shulman moved for summary judgment, Georgia filed a motion to abate all of her claims until potentially August 2021, when she contends the limitations period for the Internal Revenue Service (the "IRS") to assess taxes will expire.
The trial court, Honorable Wesley R. Ward, presiding judge of the 234th District Court of Harris County, abated the case "until August 15, 2021 or until the IRS assesses the tax liability at issue in the lawsuit, whichever is sooner." Before abating the case, the trial court signed a separate order compelling Shulman to produce documents Shulman contends are subject to the attorney-client privilege. Shulman requests mandamus relief as to both orders.
Regarding the abatement order, we hold that, under the present circumstances, abating the case for the time period at issue is an abuse of discretion and effectively vitiates Shulman's ability to present *865a claim or defense. Because relator lacks an adequate remedy by ordinary appeal, we conditionally grant the petition for writ of mandamus as to the abatement order. We deny the petition for writ of mandamus as to the order to produce documents because the trial court has not finally refused Shulman's motion to reconsider and request to review the documents in camera.
FACTUAL AND PROCEDURAL BACKGROUND
To resolve a divorce proceeding, Georgia and Michael signed a binding Mediated Settlement Agreement ("MSA"). Under the MSA, an offshore company known as Gulfstream Overseas (Bahamas) Ltd. ("GOB"), owned jointly by Georgia and Michael, was to transfer a house and $1.645 million cash to a Bahamian entity established by Georgia. The MSA did not detail the means or method of the transfer, but provided that, "Mike shall cause GOB to convey the assets to [Georgia's] Bahamian entity and account by any method he shall elect which is calculated to allow a transfer that does not create a taxable event for Georgia or the Bahamian entity except that Georgia shall pay any 'repat' tax on the assets awarded to her herein if Georgia takes any action which creates a taxable 'repat' tax event for these assets awarded to her herein." The MSA further stated that "should the US or Bahamian tax authorities deem the receipt of these assets a taxable event, Georgia shall be responsible for 100% of same and shall indemnify, defend and hold Mike and GOB and his/its property harmless from any liability thereon." The MSA divided marital property. Any disputes regarding the MSA's interpretation were to be resolved by arbitration. Georgia and Michael signed the MSA on October 30, 2013.
After signing the MSA, Georgia hired Shulman on November 19, 2013 to provide tax planning advice in connection with the property transfer from GOB. In January 2014, Shulman concluded that of multiple methods to effect the transfer, a stock redemption transaction "seemed the most logical" way to characterize the transfer for federal income tax purposes. Shulman believed that Georgia may be forced to recognize a significant amount of taxable income as a result of signing the MSA, unless the MSA was amended.
Georgia, however, understood the MSA to contemplate the property transfer by means that would not result in a taxable event to her. Georgia did not accept or follow Shulman's advice or recommendations. Georgia hired new tax counsel, Marc Grossberg, who advised Georgia that to avoid creating a taxable event for her, GOB should transfer the property to Michael and then Michael should transfer the property to Georgia.
In February 2014, the trial court signed an Agreed Final Decree of Divorce, which incorporated the MSA. Subsequently, both Georgia and Michael filed counter-proceedings for enforcement of the MSA. Michael moved to refer the matter to arbitration, which the trial court granted. The principal issue at arbitration concerned the means by which the house and cash would be transferred. According to Georgia, Shulman appeared at the arbitration as part of Michael's legal team. Georgia also contends that Shulman, acting for GOB, hired a tax expert, who testified adversely to Georgia on the issue for which Georgia had engaged Shulman. The arbitrator ruled that Georgia was to sign a stock redemption agreement to transfer the property from GOB to Georgia's Bahamian entity.
The trial court signed findings of fact and conclusions of law based on the arbitrator's award and ordered Georgia to sign the stock redemption agreement, which she did under protest on January 7, 2015.
*866Georgia filed an income tax return for the 2014 tax year, in which she took the position that she does not owe any tax on the property transfer under the MSA. As of the date of this opinion, the IRS has not assessed any tax or sent a deficiency notice to Georgia related to the property transfer.
In 2016, Georgia filed the present lawsuit against Shulman, asserting claims for negligence (legal malpractice), breach of fiduciary duty, common law fraud, statutory fraud, and tortious interference with contract. All causes of action are based on Georgia's allegations that Shulman (1) provided negligent tax planning advice, and (2) acted against Georgia's interest by advising Michael and GOB on ways to mitigate Michael's and GOB's tax liability from the property transfer, thus "undo[ing]" the tax benefit to which Georgia believed the MSA entitled her.
As a result of Shulman's conduct, Georgia maintains, she is potentially exposed to federal tax liability of approximately $1.6 million. Georgia also seeks legal, professional, and expert fees and expenses in excess of $200,000, disgorgement of attorney's fees, exemplary damages, costs, and interest.
Georgia served Shulman with requests for production of documents related to Shulman's previous representation of Michael, GOB, and other entities. In response, Shulman asserted the attorney-client privilege. Georgia filed a motion to compel production.
In the meantime, Shulman filed a traditional and no-evidence motion for summary judgment, seeking judgment as a matter of law based on collateral estoppel, the absence of damages, the absence of causation, and other reasons. Two days later, Georgia moved to abate her lawsuit until either the IRS had assessed taxes on the property transfer or until limitations barred it from doing so on August 15, 2021.
The trial court heard the motion to abate and the motion to compel, and signed an order compelling Shulman to produce responsive documents within seven days. Shulman filed an Emergency Motion for Reconsideration of the Court's Order Compelling Production and Alternative Request for In Camera Inspection. At a hearing on the motion for reconsideration, Shulman tendered the documents in question for in camera review. The trial court declined to review the documents at that time because Shulman had not shown that Michael wanted to invoke his attorney-client privilege. The trial court instructed Shulman's counsel to determine whether Michael wanted to invoke the privilege. The trial court also signed an order abating the case "until August 15, 2021 or until the IRS assesses the tax liability at issue in the lawsuit, whichever is sooner." When the trial court signed the abatement order, Shulman's summary judgment motion remained pending.
MANDAMUS STANDARD
To obtain mandamus relief, a relator generally must show both that the trial court clearly abused its discretion and that relator has no adequate remedy by appeal. In re Prudential Ins. Co. of Am. ,
An abatement order may be reviewed on mandamus when the abatement is indefinite in duration
Whether an appellate remedy is adequate so as to preclude mandamus review depends heavily on the circumstances presented. Prudential ,
With respect to discovery orders, "[m]andamus is proper when the trial court erroneously orders the disclosure of privileged information because the trial court's error cannot be corrected on appeal." In re E.I. DuPont de Nemours & Co. ,
ANALYSIS
Abatement order
A. The abatement order constitutes an abuse of discretion for which Shulman lacks an adequate remedy by ordinary appeal.
A motion to abate sets forth facts and reasons outside the petition why *868a case should not proceed or should be dismissed.
In her motion to abate, Georgia argued that abatement was necessary because proceeding with her lawsuit against Shulman forces her to take inconsistent positions, thus prejudicing her. On the one hand, to succeed on her tax damage claims against Shulman, Georgia must prove that she has incurred tax liability. On the other hand, the IRS has not assessed tax liability relating to the property transfer, Georgia has not paid any taxes arising from the property transfer, and Georgia has told the IRS she does not owe any taxes relating to the property transfer. Relying on Murphy v. Campbell ,
Shulman contends the abatement order is a clear abuse of discretion for two reasons. First, Shulman disputes that Murphy 's reasoning applies. Second, Shulman argues that abating the case until August 2021 is tantamount to an "indefinite" delay and deprives him of his right to resolution of claims and defenses within a reasonable time.
We begin with Shulman's first argument. Murphy was an accounting malpractice lawsuit in which the plaintiffs alleged faulty tax advice.
Arguing alternatively, the Murphy plaintiffs contended their suit was filed timely notwithstanding the discovery rule because the limitations period was tolled, relying on Hughes v. Mahaney & Higgins ,
Laying this last quote as the cornerstone of her motion to abate, Georgia argues that abating her malpractice claims was necessary to avoid taking inconsistent positions as to her tax liability.
In relying on Murphy to abate Georgia's claims, we conclude the trial court did not apply the law correctly to the facts. See Cerberus Capital ,
As to Shulman's second argument, we agree that the abatement period ordered here is unreasonably long so as to severely compromise Shulman's ability to obtain a ruling on viable claims or defenses that have been timely presented to the court.
Parties in a civil case are entitled to full discovery, to develop their claims and defenses, and to have the case tried, all within a reasonable time. See Colonial Pipeline , 968 S.W.2d at 941-42 (holding that order abating discovery from all but small group of plaintiffs until that group's claims were resolved unreasonably interfered with defendants' ability to prepare a defense and was abuse of discretion); In re R.R. , 26 S.W.3d at 574 (holding blanket order staying discovery on main issue because of related criminal proceeding was abuse of discretion because it vitiated defendant's ability to prepare defense in civil case). Absent authority to the contrary, Shulman has the same right as any other civil litigant to, within a reasonable time, develop his defenses and proceed to trial or resolution. See Gore , 251 S.W.3d at 699-700.
*870According to the record, Georgia and Shulman have completed substantial discovery and Shulman has filed a traditional and no-evidence motion for summary judgment. The trial court did not rule on those motions before signing the abatement order. Generally, a trial court is required to consider and rule upon a motion within a reasonable time. In re Martinez Ramirez ,
The order abated the case "until August 15, 2021 or until the IRS assesses the tax liability at issue in the lawsuit, whichever is sooner." Though the order is not by its technical terms indefinite, the abatement's years-long duration and its uncertain termination date cause us to conclude that it was an abuse of discretion. In ColonialPipeline , for example, the fact that the stayed discovery would not be available "for many months or even years" was a significant factor in granting mandamus relief as to an abatement order. Colonial Pipeline , 968 S.W.2d at 941-42. In Messervey , the court granted mandamus relief regarding an order that abated a civil case for a period of "six months or until the criminal case was concluded, whichever occurred earlier." Messervey ,
A four-year abatement is an extraordinary length of time to require a party to await resolution of claims and defenses that have been substantially discovered and presented to the court by summary judgment motion. Shulman raised several arguments that he contends entitle him to judgment regardless whether Georgia owes taxes on the property transfer. Shulman has a right to attempt to prove his entitlement to judgment without waiting years for Georgia's tax liability to materialize when the fact of that liability may be irrelevant to the success or failure of Shulman's claims and defenses. Postponing a ruling on Shulman's potentially dispositive motions for as long as four years severely compromises Shulman's right to reach potential resolution within a reasonable time.
Moreover, the abatement of Georgia's lawsuit is by no means certain to end on August 15, 2021. For example, if the IRS sends a deficiency notice or institutes a tax suit in July 2021, it is foreseeable the abatement could continue given the rationale underlying Georgia's request for abatement would not have changed. And Georgia would have the right to litigate any tax court proceeding to final judgment and through the appellate process, which could take additional years. In Gebhardt , the court held that given the evidence there before the court, it was impossible to determine when the abatement would end and thus indefinitely denied plaintiff the ability to develop her case and a forum for trial. See Gebhardt , 891 S.W.2d at 329.
Even when an abatement is not "indefinite," if it completely curtails the prosecution of an entire case and denies another party the right to proceed with full discovery or to resolution within in a *871reasonable time, the aggrieved party has no adequate remedy by appeal and mandamus may issue. See In re Baldridge , No. 04-16-00011-CV,
Georgia also cites Philips v. Giles ,
We disagree that Philips -a case Georgia did not cite to the trial court and whose vitality is at least questionable following Murphy -supports abatement in the present case. In Philips , there was no summary judgment motion pending and the defendant chose to request abatement. Here, Shulman did not request abatement, but filed a summary judgment motion following substantial discovery. Shulman asserts rights and raises issues not presented in Philips .
Georgia raises the reasonable concern that if the case is allowed to proceed, Shulman may very well receive a "windfall" if he obtains a favorable merits judgment now and the IRS subsequently assesses tax liability against Georgia. That result, however, will not follow inexorably from conditionally granting mandamus relief. If Shulman's defensive arguments entitle him to summary judgment even assuming Georgia already owes the taxes, then he is receiving no windfall by having those issues determined sooner rather than later. Once the trial court rules on the dispositive motions, the parties and the court may reassess whether a temporary abatement or other relief may be appropriate at that time to protect the interests of both parties.
For these reasons, we conclude that the abatement order constitutes an abuse of discretion and Shulman lacks adequate remedy by ordinary appeal.
B. Subject matter jurisdiction-ripeness of Georgia's claims and damages
Georgia's motion to abate presupposed that all of her claims and damages have accrued and are ripe. We question that assumption.
Ripeness is a threshold issue that implicates subject matter jurisdiction.
*872Waco Indep. Sch. Dist. v. Gibson ,
Generally, a tort cause of action must have accrued to give rise to a justiciable controversy. See Ghidoni v. Skeins ,
Subject matter jurisdiction is never presumed to exist. See Texas Ass'n of Bus. v. Texas Air Control Bd. ,
Mindful of our obligation to address subject matter jurisdiction even if the parties do not raise it,
Discovery order
Shulman asserts that the document requests at issue in Georgia's Motion to Compel, request numbers 8, 9, 23, and 24, seek documents protected by the attorney-client privilege. For example, request numbers 8 and 9 seek documents that define or describe "[Shulman's] scope [of] engagement" for legal services to other clients-GOB and Michael. Similarly, request numbers 23 and 24 seek communications between Shulman and these other clients. Shulman argues that he made a prima facie case by affidavit that the documents in question are privileged under Texas Rule of Evidence 503, which protects "communications made to facilitate the rendition of professional legal services to the client." Tex. R. Evid. 503. Shulman's affidavit states that the documents in questions are comprised of legal invoices to GOB and/or Michael and draft agreements for Gulfstream Trading, Ltd., that these documents were part of the client files for those persons or entities, and that he has never received consent to waive the attorney-client privilege as to these documents.
If the party asserting the privilege establishes a prima facie case for the privilege and "tenders documents to the trial court, the trial court must conduct an in camera inspection of those documents before deciding to compel production." In re Christus Santa Rosa Health Sys. ,
At the hearing on the motion to reconsider, Shulman tendered the documents in question for in camera review. The trial court declined to review the documents at that time not because Shulman failed to establish a prima facie case of privilege, but because Shulman did not prove that Shulman's client, Michael, wanted to invoke the attorney-client privilege. The trial court instructed Shulman's counsel to determine whether Michael wanted to invoke the privilege. The trial court did not decline to conduct an in camera review if later presented with evidence that Michael desired to assert his privilege.
*874"A party's right to mandamus relief generally requires a predicate request for some action and a refusal of that request." In re Perritt ,
CONCLUSION
For the above reasons, we conditionally grant the petition for writ of mandamus, in part, as to the abatement order and direct the trial court to vacate that order. We deny the petition, in part, as to the order that Shulman produce documents. We are confident the trial court will act in accordance with this opinion. The writ of mandamus shall issue only if the trial court fails to do so.
According to Georgia, August 15, 2021, is the date on which limitations will expire for the IRS to assess taxes on the property transfer at issue. See
See In re Gore ,
See In re Messervey Trust , No. 04-00-00700-CV,
Generally, a motion to abate or plea in abatement based on facts outside of the record must be verified. See In re Gen. Agents Ins. Co. of Am., Inc. ,
We express no opinion whether the Hughes tolling rule may apply to this dispute in the future.
See Univ. of Tex. Sw. Med. Ctr. v. Loutzenhiser ,
Case-law data current through December 31, 2025. Source: CourtListener bulk data.